Franc Weakening Looms as Yen Intervention Sparks Carry Trade Shift

A weaker Swiss franc could be an unexpected consequence of recent U.S.-Japanese intervention to prop up the yen, bringing relief to companies and policymakers in Switzerland who have grappled with the strength of their local currency for years.

The franc is still 12% stronger against the euro than five years ago, despite some recent softening, thanks to Switzerland's persistent current account surplus, sound public finances, low inflation and safe-haven inflows. Its strength has made the country's exports more expensive and squeezed economic growth.

Analysts and investors expect a rotation from the yen to the Swiss franc in carry trades, which involve borrowing in currencies with low interest rates to sell them and buy higher yielding assets elsewhere. The yen is expected to remain jumpy due to intervention risk.